Assume that Metro Healthcare (a for-profit business) plans to acquire a new X-ray machine. Use the dollar cost approach to show analysis for the implication of the below transaction:

If the equipment is leased:

• Metro can obtain a four-year lease that includes maintenance.
• The lease meets IRS guidelines.
• The rental payment would be $280,000 at the beginning of each year.

If the equipment is purchased:

• Equipment cost = $1,000,000.
• Bank loan rate = 10%.
• A four-year maintenance contract would cost $20,000 at the beginning of each year.
• Residual value (at t = 4) = $100,000.

Other information:

• Marginal tax rate = 40%.
• Equipment has a 3-year MACRS life.